EmailThings ended on an anxious note last week as doubts about Greece's ability to pass tough austerity measures weighed on equity prices. That weight has been lifted this morning, however, after Greece's parliament voted in favor of an unpopular reform package that is necessary to win the bailout funds Greece desperately needs to avoid defaulting on EUR 14.5 bln of debt that comes due next month.
The S&P futures are trading 9 points above fair value, leaving the cash market poised to reclaim the ground that it lost in Friday's 0.7% decline.
That is a sigh-of-relief response to the Greek parliament vote that was not a sure thing heading into the weekend. Even so, there are still more acts that need to be played out in this Greek tragedy.
EU finance ministers still need to give their approval to Greece's reform plan; private creditors still need to follow through with a debt swap agreement; Greek party leaders still need to convince troika officials that they will adhere to the bailout agreement after elections are held in April; and Greece still needs to implement the austerity measures. Riots around the country after the vote signalled the latter will not be an easy task.
Interestingly, the market appears to be focusing this morning on what it knows more so than what it fears. That is the opposite of the default response in 2011.
It may fear that Greece will come undone again, but what it knows today is that the Greek parliament made the necessary decision that lessens the possibility of an imminent default on its debt. Accordingly, there is a bid in risk assets.
The Greek stock market is up 5.5%, which says a lot as buildings burn in Athens. Most European markets are trading higher at the moment, although their gains are generally closer to 1.0%. Asian markets also posted modest gains on Monday.
If things stay the way they are, the S&P 500 should start today with a gain of about 0.7%.
There isn't any significant corporate news of note as the early action is geared toward the headlines on Greece. Separately, President Obama's budget plan for FY13 will be released today.
There should be plenty of other distractions as the week continues. The economic calendar gets going tomorrow with the January Retail Sales report, which will be followed later in the week with reports on industrial production, initial claims, housing starts, PPI, CPI, leading indicators, and some regional manufacturing surveys.
In addition, 51 S&P 500 companies are slated to report their earnings results. Fourth quarter earnings are on track to increase 8.9%, according to Thomson Reuters, which is up from 8.4% at the start of last week.
Greece may be getting most of the attention, yet the continued earnings growth remains an unheralded and important fundamental source of support for the equity market.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
